HSBC cuts Apple to 'hold', cites market saturation
HSBC downgraded its stance tech giant Apple to 'hold' from 'buy' on Tuesday, trimming the target price to $200 from $205 as it pointed to its dependence on the iPhone and the saturation of the smartphone market.
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"Ten years on, the iPhone, Apple's profit engine is bound to get hit by market saturation, slowing average selling prices expansion and fierce competition," the bank said in a note.
"Apple's iconic hardware unit growth is broadly over for now," said analyst Erwan Rambourg. "Revenues are only supported by higher selling prices and by the development of services. Flat unit growth has hit Apple’s share price and incidentally its key suppliers. What has made the success of Apple, a concentrated portfolio of highly desirable (and pricy) products is now facing the reality of market saturation."
Rambourg said investors were now in a position where it was "too late to sell, too early to buy".
He said that as Apple moves from very high double-digit revenue growth to a more pedestrian mid single-digit - both top and bottom line - the slowdown in the second derivative of growth will weigh on the stock’s investment case.
"While we understand the company’s interest of not disclosing unit sales of hardware and focusing more on service gross margin, investor enthusiasm could be the victim of a lengthy transition phase as the focus shifts," he added.
Rambourg said that if it were just the US market, which accounted for 37% of group revenue for FY2018, HSBC would probably be more optimistic as its proprietary survey shows very positive signs there. However, he doesn't reckon that emerging markets will offer any respite.
China could see competition heat up, notably from local brands, while in India he highlighted the potential for production and distribution issues and noted a likely insufficient upper middle class market potential.
Rambourg said the stock does not appear "particularly expensive" in absolute and relative terms. However, he also noted that it has sometimes traded in line with the luxury goods sector, something he believes is not justified.
At 1525 GMT, the shares were down 1.8% to $181.51.